Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
Risk aversion continued to set the tone during the last session of the week, fueled by a further upward revision in investors’ expectations for the likely path of policy interest rates ahead. These worries were compounded by the announcement from Russia that the country will cut its oil production by 500k barrels a day next month.
In yesterday’s session, investors traded cautiously, closing with mixed results in the US and in Europe. The lower-than-expected HICP inflation print in Germany (9.2% in January from 9.6%) pushed down yields on sovereign bonds in the euro area (despite the hawkish tone from some ECB officials) and allowed stock indices to increase.
Central bank communication remained at the center stage yesterday, as Fed and ECB officials reiterated that monetary policy would need to be restrictive for a while. In the eurozone, GC member Klaas Knot, said the ECB should only decrease the pace of rate hikes once it sees underlying inflation abating, pointing to a 50bp hike in May.
Yesterday investors continued to digest the messages from central bank officials, who, in general, have toughened the stance against inflation and show a more hawkish tone. In this context, yields on sovereign bonds rose further in the eurozone, more notably in the periphery, while remaining broadly unchanged in the US.
In the beginning of the week, investors continued to digest the US employment figures report released on Friday, which suggested that the tightness in the labor market is far from moderating at the pace the Fed would like to see.
In the last session of the week, financial markets were very volatile after the upside surprise in the US labor market report for January. Non-farm payrolls rose by 517k, well above consensus expectations (+188k) and the upwardly revised monthly average in 2022 (401k). The unemployment rate ticked down to 3.4%, a level not seen since 1969.
Risk appetite continued to set the tone across financial markets on Thursday, fueled by expectations that the cycle of monetary policy tightening may be nearing its end.
As expected, the Federal Reserve increased policy interest rates by 25 bp to the range 4.50%-4.75% but surprised by giving a dovish tone, noting that disinflationary pressures have started while the economy is starting to slow. The Fed reiterated that “ongoing increases” on interest rates would still be needed.
Investors continued to trade cautiously on Tuesday, taking position ahead of a crucial monetary policy meeting at the Federal Reserve today, where the central bank is expected to scale down the pace of interest rate hikes (+25 bp) but to signal more adjustments ahead.
Investors kicked off a busy week of macro data releases and central bank decisions with a cautious approach, taking on board signs of lingering inflationary pressures across Europe as well as disappointing GDP figures in Germany (-0.2% q/q after +0.5% in Q3, ahead of the release of the eurozone aggregate this morning).
Risk appetite continued to set the tone during the last session of the week, with investors still assessing the resilience in economic indicators and the potential implications for monetary policy decisions ahead. This week, Fed (Wednesday), ECB and BoE (Thursday) will hold their first monetary policy meetings of the year.